A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value.
In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.
Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy. Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time. There could be few type of Financial Crisis, Like Banking Crisis, Currency crisis, Speculative bubbles and crashes, International financial crisis, wider economic crisis. I still remember the collapse of the U.S. housing market in 2006 and the ensuing financial crisis that wreaked havoc on the U.S. and around the world. Financial crises are, unfortunately, quite common in history and often cause economic tsunamis in affected economies. Five most-devastating financial crises took place in modern times.
One of them is The Credit Crisis of 1772. That crisis originated in London and quickly spread to the rest of Europe. In the mid-1760s the British Empire had accumulated an enormous amount of wealth through its colonial possessions and trade. This created an aura of over optimism and a period of rapid credit expansion by many British banks. The hype came to an abrupt end on June 8, 1772, when Alexander Fordyce, one of the partners of the British banking house Neal, James, Fordyce, and down fled to France to escape his debt repayments. Another Financial Crisis was named as The Great Depression of 1929–39.This was the worst financial and economic disaster of the 20th century. Many believe that the Great Depression was triggered by the Wall Street crash of 1929 and later exacerbated by the poor policy decisions of the U.S. government. The Depression lasted almost 10 years and resulted in massive loss of income, record unemployment rates, and output loss, especially in industrialized nations. The Organization of the Petroleum Exporting Countries (OPEC) Oil Price Shock of 1973 crisis began when OPEC member countries primarily consisting of Arab nations decided to retaliate against the United States in response to its sending arms supplies to Israel during the Fourth Arab–Israeli War. OPEC countries declared an oil embargo, abruptly halting oil exports to the United States and its allies. This caused major oil shortages and a severe spike in oil prices and led to an economic crisis in the U.S. and many other developed countries. The Asian Crisis of 1997 came into existence in Thailand in 1997 and quickly spread to the rest of East Asia and its trading partners. Speculative capital flows from developed countries to the East Asian economies of Thailand, Indonesia, Malaysia, Singapore, Hong Kong, and South Korea had triggered an era of optimism that resulted in an overextension of credit and too much debt accumulation in those economies. It took years for things to return to normal. The International Monetary Fund had to step in to create bailout packages for the most-affected economies to help those countries avoid default. The most recent financial crisis Came as The Financial Crisis of 2007–08 .This sparked the Great Recession, the most-severe financial crisis since the Great Depression, and it wreaked havoc in financial markets around the world. Triggered by the collapse of the housing bubble in the U.S., the crisis resulted in the collapse of Lehman Brothers, brought many key financial institutions and businesses to the brink of collapse, and required government bailouts of unprecedented proportions. It took almost a decade for things to return to normal, wiping away millions of jobs and billions of dollars of income along the way.
Pakistan has secured a multibillion-dollar bailout package from the IMF in a desperate attempt to get out of a crippling economic situation. But the road to strengthen the nation’s finances is tough. If the deal is approved by the IMF’s management, the South Asian nation will receive $6 billion in financial assistance over a period of three years to stave off a balance-of-payments crisis. The economy of the majority-Muslim nation with a population of over 200 million has slid deeper into crisis since new prime minister took over last year. Burgeoning fiscal and current account deficits and a dip in revenues from tax collection are at the heart of the crisis. But unfortunately FBR still not succeeded to achieve their tax recovering goals For Pakistan. Moreover a heavy budget for FBR allocated to give them their facility to achieve all these goals. Regional tax office chief commissioners and their subordinates are not working exceptionally that’s why result orientation is in vain. In business Large tax payer units are complaining about their huge money in the sense of refund of tax is stuck in FBR that’s why country is no more enjoying the billion of rupees in running movement, this is the reason of crippling situation in Pakistan. Although prime minister has taken a big step of removal of finance minister and chairman FBR that appears the previous FBR chairman was not working accordingly to achieve such asking goals. Although assistant commissioner are still not groomed to called a good officer by the behavior and incompetency. Although the new era by the new chairman to stop the attach tax payer account is highly appreciable. Due to this bribe tradition has come to an end. According to my sources approximately 13,000 cases are pending before various FBR Courts while around Rs 300 billion revenue is stuck up in appeals which could have help to enhance the GDP of Pakistan. Moreover our exports are not giving privilege due to high rates of Utility like fuel etc. Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position. Net payment tax policy should be introduced to people to work smoothly in the country which can help Pakistan to be the radiant country in south Asia.
The writer is an entrepreneur & senior economic analyst.